Brookings: Experts - Robert D. Atkinson

The Competitiveness Gap: The True Cause of the Global Recession

Robert D. Atkinson and Stephen Ezell — Fri, 08 Feb 2013 00:00:00 -0500

As an American, it was heartening to read Prime Minister David Cameron’s recent Lord Banquet Speech about the need to better prepare Great Britain for the global economic race. The prime minister articulated the need for a comprehensive plan of reforms to enhance innovation and improve Britain’s industrial competitiveness. It shows that, unlike America, Britain is recognizing the broader systemic causes of the global recession and moving past old ideas and theories that do not match our current reality.

Here most economists and policy makers continue to assert that the 2008 Great Recession was caused by the collapse of the housing bubble, and that budget belt tightening alone is the best medicine needed to revive a sluggish economy. However, as we showed in Innovation Economics: The Race for Global Advantage, the housing bubble was not the cause, it was the effect. For in the last decade, many western countries, including Britain, Greece, Ireland, Italy, Spain, and the United States, began to fall behind in global competitiveness, losing production and jobs to developing nations, like China and India. With companies losing markets and moving production overseas, the demand for real investment capital to build new factories, buy new machines, and power the creation of new ideas shrank. And rather than downsize in the face of reduced demand for their services, banks and other financial institutions gambled on risky mortgages, funneling money into the Ponzi scheme of housing.

Furthermore, these countries, including Great Britain, began to lose the engineering, product development and technological capacity that go with a strong industrial base. Of the ten major industrial nations, Britain and the United States lost a significantly greater share of their manufacturing jobs than other nations. In both countries, as well as in Italy and Spain, industrial production was actually lower at the end of 2010 than it was at the beginning of the decade.

Without vibrant and competitive global industries, national economies will wither, as we are seeing so clearly in Italy and Spain. In contrast, when countries are winning, or at least not losing innovation ground, investment is stable or growing, jobs are more plentiful, and real wages (and demand) are increasing. We see this in nations like Austria, Germany, and the Nordics which field a team of vibrant global competitors. The lesson should be clear to policymakers: It’s impossible to obtain robust economic growth without a vibrant and competitive traded sector (e.g., manufacturing, creative industries, software, etc.).

Fortunately, all is not doom and gloom, at least for Europe. Prime Minister Cameron’s potential reform package is one of several steps being taken to increase competitiveness on the continent. Many European nations, as well as the EU, are making new commitments to support research and development in order to spur the creation of new industries and the revitalization of existing ones. And many are expanding high tech tax incentives, as the U.K. has done in expanding its R&D tax credit and putting in place a new “patent box” incentive. And finally, many European nations have recently announced comprehensive innovation strategies that seek to enhance investment in high-tech industries, promote new product development, and develop a higher skilled work force.

In contrast, America remains stuck between 19th century laissez-faire advocates on the right and 20th century social democrats on the left, and has been unable to take these centrist, pragmatic steps.However, for Europe and the U.K. to thrive will require them to work in close cooperation with the United States and international institutions such as the World Bank and World Trade Organization to more vigorously fight what can be called a new “innovation mercantilism”—the practice by nations like Brazil, China, and India of putting in place a host of unfair and protectionist policies to gain advantage in the industry specialties of Europe and America.

Hopefully, Cameron’s call to action will serve as the spark needed to create not only robust action in Britain, but an international mandate for real reforms that can allow all nations to participate in the innovation economy.

Authors

Robert D. Atkinson
Stephen Ezell

Image Source: © Michael Caronna / Reuters

Cut to Invest: Support the Designation of 20 "U.S. Manufacturing Universities"

Robert D. Atkinson and Stephen Ezell — Mon, 14 Jan 2013 00:00:00 -0500

Congress should establish an initiative to designate 20 institutions of higher education as “U.S. Manufacturing Universities” as part of a needed push to strengthen the position of the United States in the increasingly innovation-driven global economy. In 1862, Congress passed the Morrill Act, which established land-grant colleges to promote learning in “agriculture and the mechanic arts.” These colleges played a key role in enabling the United States to later take the lead in the mechanization of agriculture and the industrialization of the economy. Today, the challenge is even greater as America competes against a wide array of nations seeking to win the race for global innovation advantage, especially in advanced manufacturing. A new cadre of federally-designated “Manufacturing Universities” that revamp their engineering programs with particular emphasis on work that is relevant to manufacturing firms while providing engineering students with real-world work experience should be part of the solution.

Background
In the aftermath of the Great Recession, states and metropolitan areas throughout the United States have come to recognize the importance of cultivating regional economies that are strong in production, innovation, and global trade. In contrast to the debt-driven, consumption-oriented economy of years past, this new economic growth model places great emphasis on innovation activity and advanced manufacturing capacity, which together improve the nation’s competitiveness in the global marketplace.

As the largest internationally traded sector, manufacturing is critical to the health of the U.S. economy. It is simply impossible to have a vibrant national economy without a globally competitive traded sector. And for U.S. metro areas, where over 80 percent of manufacturing jobs and 95 percent of high-tech manufacturing jobs are located, such an advanced manufacturing revival is particularly critical.

As a relatively high-cost nation, the only way the United States can regain manufacturing competitiveness is through innovation and productivity, both of which are driven by engineering capabilities that are cultivated, in part, by the nation’s institutions of higher education. University-based engineering programs can play a critical role in supporting advanced research, particularly in areas of relevance for manufacturers, and can help train the highly skilled workforce that advanced manufacturers need.

Proposal
Given these challenges, the Information Technology and Innovation Foundation and the Metropolitan Policy Program at Brookings propose that the federal government support the designation of a core of approximately 20 leading “Manufacturing Universities.” As part of this designation, academic institutions would receive an annual award from the National Science Foundation, ideally at least $25 million per year, plus prioritization of their other applications in the awarding of National Science Foundation (NSF) grants.

Designated universities would have several responsibilities. First, they would be required to revamp their engineering programs much more around manufacturing engineering, with particular emphasis on work that is relevant to industry. This would include more joint industry-university research projects; more training of students that incorporates manufacturing experiences through cooperative education or other programs; and a Ph.D. program focused on turning out more engineering Ph.D.s who would work in industry. These universities would view doctoral training as akin to high-level apprenticeships (as is often the case in Germany) and would not allow the conferral of a Ph.D. unless one has done some work in industry. Likewise, criteria for faculty tenure would consider professors’ work with and/or in industry equally as much as their number of scholarly journal publications. In addition, their business schools would focus on manufacturing issues, including management of production, and integrate closely with the engineering program. One can imagine a number of leading engineering universities—Caltech, Carnegie Mellon, Georgia Tech, Lehigh, the Massachusetts Institute of Technology (MIT), Michigan, Purdue, Stanford, and others—readily transforming themselves to embrace this designation.

One possible model (albeit on a small scale) is the Olin College of Engineering in Massachusetts, which reimagined its engineering education and curriculum to prepare students “to become exemplary engineering innovators who recognize needs, design solutions, and engage in creative enterprises for the good of the world.” Olin’s results have been impressive. Its new method of teaching engineering has been widely praised among engineering firms, and, on a per-student-graduated basis, Olin graduates start more new businesses than MIT graduates. Olin is a one good model for how the United States can transform its universities into entrepreneurial factories while encouraging the development of completely new schools based on the needs of the current workforce.

These Manufacturing Universities would complement, not duplicate, any national manufacturing institutes established under proposed legislation to create a National Network of Manufacturing Innovation (NNMI). The NNMI institutes would be private-sector led and, while affiliated with universities, would not attempt to change how university engineering programs function. In contrast, the Manufacturing Universities proposal would work to ensure that universities themselves function in ways that are more supportive of the U.S. manufacturing economy.

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Authors

Robert D. Atkinson
Stephen Ezell

Image Source: © Larry Downing / Reuters

Creating the Manufacturing University

Robert D. Atkinson — Mon, 14 Jan 2013 00:00:00 -0500

Editor's Note: Robert Atkinson further discusses key points in his newly released paper, Cut to Invest: Support the Designation of 20 "U.S. Manufacturing Universities," proposing federal support of these institutions to advance manufacturing competitiveness through advanced research, innovation, and productivity.

American manufacturing is in crisis. Over the last decade the United States lost one-third of its manufacturing jobs, more than any other industrialized nation, and our total industrial production was actually less in 2010 than at the start of the 2000s. And for those who think the movement of manufacturing to lower cost countries is simply the natural order of things, you only need to look at the impact of manufacturing loss on innovation to see the true danger in this decline.

As industrial production has moved overseas, the engineering, product development and technology innovation that are key components of manufacturing has gone with it. And it is getting worse. Countries like China and India are pumping millions into their R&D and university infrastructure, while adopting mercantilist trade policies that are only enhancing our loss of intellectual property and technical know-how. Given this environment, the United States is in serious jeopardy of permanently losing the race for innovation advantage, further hampering our overall economy and the standard of living of our citizens.

In an effort to address this potential catastrophe and restore American leadership in manufacturing, the Information Technology and Innovation Foundation (ITIF) and the Brookings Institution Metropolitan Policy Program are proposing that the federal government support the designation of a core of approximately 20 leading “manufacturing universities.” This would include significant federal investment of $25 million per university and the creation of a network of industry-university partnerships that could provide the technical training and applied research necessary to transform American industries and assist us in better competing globally.

Designated universities would revamp their engineering programs with a focus on manufacturing engineering and curricula designed specifically for targeted industries. This would include: joint industry-university research projects; training of students that incorporates manufacturing experiences through co-ops or internships; and a focus on turning out more Ph.D. engineering grads who would work in industry. Ph.D.s would be transformed into high-level apprenticeships (as they often are in Germany), where industrial experience is a requirement for graduation. Likewise, criteria for faculty tenure would be reformed to include professors’ work with industry and the connection of research with industrial applications, as much as their number of publications. In addition, designated universities would also introduce new programs in their business schools that focus on manufacturing issues, including management of production, and integrate more closely with their engineering schools.

One, though not the only model, is the Olin College of Engineering in Massachusetts, which re-imagined engineering education and curriculum to prepare students “to become exemplary engineering innovators who recognize needs, design solutions, and engage in creative enterprises for the good of the world.”

In 1862, Congress passed the Morrill Act that established land-grant colleges whose mission was to promote learning in agriculture and mechanic arts. These institutions later became leaders in mechanization of agriculture, the American Industrial Revolution and the tremendous expansion of our economy in the 20^th century. Today, the challenges America faces are even more pervasive, as a wide array of nations are already ahead in the race for global innovation advantage, particularly in manufacturing. A new cadre of “manufacturing universities” can be a key part of the solution.

Authors

Robert D. Atkinson

Image Source: © Ruben Sprich / Reuters

Boosting Productivity, Innovation, and Growth through a National Innovation Foundation

Robert D. Atkinson and Howard Wial — Tue, 22 Apr 2008 12:00:00 -0400

View the policy brief »

Innovation drives America’s economic growth and ultimately determines its living standards and those of its metropolitan areas. However, the nation faces a growing innovation challenge in today’s global economy. To respond, the federal government should establish a National Innovation Foundation (NIF)—a new, nimble, lean, and collaborative entity devoted to supporting firms and other organizations in their innovative activities. By enhancing America’s world-class entrepreneurial and market environment, NIF would boost the nation’s innovation leadership for the 21st century and raise productivity and incomes. Moreover, by supporting workforce development and performance improvement in firms, NIF would help create better jobs for high school graduates in manufacturing and “low tech” services as well as those with advanced degrees in high technology industries.

America’s Challenge

Global competition is increasing. Like manufacturing, call centers, and software production, corporate R&D is also shifting overseas. Over the last decade, the share of U.S. corporate R&D sites declined from 59 to 52 percent within the United States, while it increased from 8 to 18 percent in China and India.
American innovation leadership is slipping. The U.S. ranks only seventh among OECD countries in the percentage of GDP devoted to R&D expenditures.
Private markets suffer innovation inefficiencies. Private firms tend to under-invest in innovation because no single business can capture all the economic benefits arising from new technologies, products, or business models.

Limitations of Existing Federal Policy

There is no national innovation policy. Rather than comprising an explicit, focused, national agenda, federal innovation efforts are scattered throughout government.
There is little focus on services innovation and commercialization. Existing federal innovation activities pay little attention to the service sector and to the important roles that smaller firms and universities play in the commercialization process.
There is no systematic innovation partnership between the federal government and state and local governments. Federal policies do little to support the effective, albeit underfunded, innovation efforts established by state and local governments.

A New Federal Approach
The federal government should establish a new National Innovation Foundation (NIF) with the sole mission of promoting innovation. The NIF’s proposed budget would be $1-2 billion per year. The new entity could exist as a new agency within the Commerce Department, a government-related public corporation, or an independent federal agency like NSF. The NIF would:

Catalyze industry-university research partnerships through national sector research grants.
Expand regional innovation-promotion through state-level grants to fund activities like technology commercialization and entrepreneurial support.
Encourage technology adoption by assisting small and mid-sized firms in implementing best-practice processes and organizational forms that they do not currently use.
Support regional industry clusters with grants for cluster development.
Emphasize performance and accountability by measuring and researching innovation, productivity, and the value-added to firms from NIF assistance.
Champion innovation by promoting innovation policy within the federal government and serving as an expert resource on innovation to other agencies.

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Robert D. Atkinson
Howard Wial

America’s Innovation Challenge: Innovation Policy and Regional Industry Clusters

Tue, 22 Apr 2008 08:00:00 -0400

Event Information

April 22, 2008
8:00 AM - 10:00 AM EDT

National Press Club
529 14th Street, NW
Washington, DC 20045

The Brookings Metropolitan Policy Program held a briefing at The National Press Club in Washington DC on Tuesday April 22, 2008 highlighting America’s slipping leadership in commercial innovation and two bold responses to it. The session previewed two major new reports on federal economic policy: “Boosting Productivity, Innovation, and Growth Through a National Innovation Foundation,” by ITIF President Robert Atkinson and Howard Wial, a Brookings economist; and “Clusters for Competitiveness: A New Federal Role for Stimulating Regional Economies,” by venture capitalist Karen Mills; Liz Reynolds, a Massachusetts Institute of Technology doctoral student; and Andrew Reamer, a fellow at Brookings.

The reports calls on the federal government to establish a National Innovation Foundation (NIF)—a nimble, lean, and collaborative entity devoted to supporting firms and other organizations in their innovative activities. Moreover, the federal government should establish an industry clusters program that supports organizations in regional economies to produce more commercial innovation and higher wage employment.

This briefing was an activity of the Blueprint for American Prosperity, a multi-year initiative to promote an economic agenda for the nation that builds on the assets and centrality of America's metropolitan areas.

Event Materials

Participants

Panelists

Deborah Wince-Smith

President, Council on Competitiveness

Howard Wial

Economist, Metropolitan Policy Program at Brookings

Karen Mills

President, MMP Group

Randall Kempner

Vice President, Regional Innovation,
Coucil on Competitiveness

Emily DeRocco

President, National Center for the American Workforce
National Association of Manufacturers

Ron Blackwell

Chief Economist, AFL-CIO

Ernest Dianastasis

Managing Director, CAI, Inc

Ray Scheppach

Excutive Director, National Governors Association

The Implications of Service Offshoring for Metropolitan Economies

Robert D. Atkinson and Howard Wial — Thu, 01 Feb 2007 00:00:00 -0500

An examination of service offshoring—the movement of service jobs overseas—forecasts higher than average job losses in twenty-eight U.S. metropolitan areas between 2004 and 2015. Information technology jobs, and the metropolitan areas where they are concentrated, will be hardest hit. To cushion the service offshoring blow, the paper urges federal, state, and local leaders to together pursue policies that boost productivity and innovation, assist workers who are harmed by offshoring, and modernize approaches to economic and workforce development.

Findings

Service "offshoring"—the movement of service jobs from the United States to other countries, especially low-wage countries—has emerged as a concern of both political and business leaders in recent years. Using occupational data, this study projects the likely job losses from service offshoring between 2004 and 2015 in 246 U.S. metropolitan areas. It finds that:

Twenty-eight metropolitan areas, with 13.5 percent of the nation's population, are likely to lose between 2.6 and 4.3 percent of their jobs to service offshoring, higher than the average loss among the metropolitan areas studied. Five metropolitan areas—Boulder, CO; Lowell, MA; San Francisco, CA; San Jose, CA; and Stamford, CT—are likely to lose between 3.1 and 4.3 percent of their jobs to service offshoring between 2004 and 2015, while 23 others are likely to lose between 2.6 and 3 percent of their jobs. However, 158 metropolitan areas are likely to lose no more than 2 percent of their jobs as a result of service offshoring.
Large metropolitan areas and metropolitan areas in the Northeast and West are generally more vulnerable to service offshoring than small metropolitan areas or metropolitan areas in the Midwest or South. Job losses from service offshoring between 2004 and 2015 are projected at 2.4 percent for metropolitan areas with populations of one million or more but only 1.7 percent for metropolitan areas with populations below 250,000. About 2.3 percent of jobs in Northeastern and Western metropolitan areas are likely to be offshored, compared to 2.2 percent in Midwestern metropolitan areas and 2.1 percent in Southern ones.
Metropolitan areas with large concentrations of information technology service jobs or backoffice jobs are generally more vulnerable to service offshoring than other metropolitan areas. Between 2004 and 2015, service offshoring is likely to cause the loss of 2.6 percent of jobs in metropolitan areas that specialize in information technology services and 2.4 percent of jobs in metropolitan areas that specialize in back-office services but only 1.9 percent of jobs in other metropolitan areas.
At least 17 percent of computer programming, software engineering, and data entry jobs are likely to be offshored in particular metropolitan areas. Employment of computer programmers, data entry keyers, and software engineers (applications) is projected to fall by at least 17 percent between 2004 and 2015 in Bergen-Passaic, NJ; Boston, MA; Boulder, CO; Danbury, CT; Denver, CO; Hartford, CT; Minneapolis, MN; Nashua, NH; Newark, NJ; Orange County, CA; San Francisco, CA; San Jose, CA; Stamford, CT; and Wilmington, DE because of service offshoring. In Bergen-Passaic, 14 to 17 percent of customer service representatives' and insurance underwriters' jobs are projected to move abroad.

Overall, the loss of service jobs to offshoring in the near future will be modest. However, offshoring's impact will be greater in metropolitan areas with high shares of information technology or back-office service jobs and in particular occupations within metropolitan areas. To reduce vulnerability to service offshoring, federal, state, and local leaders should work in concert to pursue policies that boost productivity and innovation, assist workers who are harmed by offshoring, and modernize approaches to economic and workforce development.

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Authors

Robert D. Atkinson
Howard Wial